Essential InSights

Core Topics for the Everyday Investor

Definitions: Inflation

Definitions: Inflation

Inflation is a measurement of the rise in the cost of goods and services. Thus the inflation rate is the decline of the purchasing power of your money over time. So over time your money simply can buy less. 

Several benchmarks estimate the rate at which the decline in purchasing power occurs. The CPI, PPI and wage indexes are among these. These benchmarks are primarily measured as an increase of an average price level of a basket of selected goods and services over intervals. The rise in the general level of prices, often expressed as a percentage means that a unit of currency effectively buys less than it did in prior periods.

Sources of inflation can vary in different ways, but measured in the aggregate can provide an important source of devaluing essential in long term planning.

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